The Open Secret of Success

In the current atmosphere of economic tumult, the announcement that Toyota sold a hundred and sixty thousand more cars than General Motors in the first three months of this year might seem like a minor news item. But it may very well signal the end of one of the most remarkable runs in business history. For seventy-seven years, in good times and bad, G.M. has sold more cars annually than any other company in the world. But Toyota has long been the auto industry’s most profitable and innovative firm. And this year it appears likely to become, finally, the industry’s sales leader, too.

Calling Toyota an innovative company may, at first glance, seem a bit odd. Its vehicles are more liked than loved, and it is often attacked for being better at imitation than at invention. Fortune, which typically praises the company effusively, has labelled it “stodgy and bureaucratic.” But if Toyota doesn’t look like an innovative company it’s only because our definition of innovation—cool new products and technological breakthroughs, by Steve Jobs-like visionaries—is far too narrow. Toyota’s innovations, by contrast, have focussed on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

At the core of the company’s success is the Toyota Production System, which took shape in the years after the Second World War, when Japan was literally rebuilding itself, and capital and equipment were hard to come by. A Toyota engineer named Taiichi Ohno turned necessity into virtue, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple, even obvious—do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. And they weren’t even entirely new—Ohno himself cited Henry Ford and American supermarkets as inspirations. But what Toyota has done, better than any other manufacturing company, is turn principle into practice. In some cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban, a card system that allows workers to signal when new parts are needed. In other cases, it has done so by reorganizing factory floors and workspaces in order to allow for a freer and easier flow of parts and products. Most innovation focusses on what gets made. Toyota reinvented how things got made, which enabled it to build cars faster and with less labor than American companies.

But there’s an enigma to the Toyota Production System: although the system has been widely copied, Toyota has kept its edge over its competitors. Toyota opens its facilities to tours, and even embarked on a joint venture with G.M. designed, in part, to help G.M. improve its own production system. Over the years, more than three thousand books and articles have analyzed how the company works, and things like andon systems are now common sights on factory floors. The diffusion of Toyota’s concepts has had a real effect; the auto industry as a whole is far more productive than it used to be. So how has Toyota stayed ahead of the pack?

The answer has a lot to do with another distinctive element of Toyota’s approach: defining innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis. (The principle is often known by its Japanese name, kaizen—continuous improvement.) Instead of trying to throw long touchdown passes, as it were, Toyota moves down the field by means of short and steady gains. And so it rejects the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers. (Japanese companies get a hundred times as many suggestions from their workers as U.S. companies do.) Most of these ideas are small—making parts on a shelf easier to reach, say—and not all of them work. But cumulatively, every day, Toyota knows a little more, and does things a little better, than it did the day before.

The system doesn’t necessarily preclude missteps—in 2006, Toyota ran into a series of quality problems—and it’s possible that the focus on incremental innovation would be less well suited to businesses driven by large technological leaps. But, on the whole, the results are hard to argue with. They’re also phenomenally difficult to duplicate. In part, this is because most companies are still organized in a very top-down manner, and have a hard time handing responsibility to front-line workers. But it’s also because the fundamental ethos of kaizen—slow and steady improvement—runs counter to the way that most companies think about change. Corporations hope that the right concept will turn things around overnight. This is what you might call the crash-diet approach: starve yourself for a few days and you’ll be thin for life. The Toyota approach is more like a regular, sustained diet—less immediately dramatic but, as everyone knows, much harder to sustain. In the nineteen-nineties, a McKinsey study of companies that had put quality-improvement programs in place found that two-thirds abandoned them as failures. Toyota’s innovative methods may seem mundane, but their sheer relentlessness defeats many companies. That’s why Toyota can afford to hide in plain sight: it knows the system is easy to understand but hard to follow. ♦

James Surowiecki is the author of “The Wisdom of Crowds” and writes about economics, business, and finance for the magazine.